The economy of Ghana has faced significant challenges and transformations due to the combined impact of political decisions and international events. This article explores how these factors have shaped the country’s internal economic conditions, focusing particularly on the effects of the coronavirus pandemic and the Ukrainian crisis.
It examines the precautionary measures adopted by the Ghanaian government during the pandemic and their interplay with ongoing political dynamics. Additionally, it highlights how the Ukraine war has disrupted key economic sectors, revealing the interconnectedness of the global system.
Moreover, the article emphasizes the critical role of political decisions in influencing the economy of Ghana, especially in the context of election promises and governance strategies during a government’s first term. This analysis provides a comprehensive view of how domestic policies and global events collectively impact Ghana’s economic realities, offering insights into broader trends in interconnected economies.
Key Takeaways
A Brief Overview of the Republic of Ghana
Ghana is located in West Africa, bordered to the east by Togo, to the west by Côte d’Ivoire and Burkina Faso, and to the south by the Atlantic Ocean. It has a population of approximately 32 million. Ghana gained its independence in 1957, becoming the first sub-Saharan African country to do so. The country was named after the first empire established in West Africa, the Ghana Empire.
The political system in Ghana is a republic, with a presidential form of governance, where the president holds significant powers. The political landscape is dominated by two main parties: the National Democratic Congress (NDC) and the New Patriotic Party (NPP). The Ghanaian economic system is capitalist and market-driven, even in fundamental sectors such as education and health.
The Gross Domestic Product (GDP) of Ghana is estimated at 70 billion dollars, reflecting the diverse structure of the economy of Ghana. As a member of the Economic Community of West African States (ECOWAS) and the African Continental Free Trade Area (AfCFTA), Ghana also hosts the AfCFTA Secretariat.
The Ghanaian economy is heavily reliant on hydrocarbons, agriculture, and mining. Notably, Ghana is the world’s second-largest cocoa producer and Africa’s second-largest gold producer, underscoring its significance in global commodity markets.
The Economy of Ghana before COVID-19
Before the coronavirus pandemic, Ghana’s economy was thriving, with strong economic indicators highlighting its progress. Ranked as the fastest-growing economy in the world in 2019, Ghana experienced a significant drop in its inflation rate, which fell from 15.4% in 2016 to 7.9% in 2019, showcasing the robust performance of the economy of Ghana. [iii][iv]
The budget deficit in Ghana decreased from 6.5% of GDP in 2016 to 5% in 2019, reflecting improved fiscal management. Real GDP growth also rose significantly, reaching 7.5% in 2019, up from 6.3% in 2017, further highlighting the positive trajectory of the economy of Ghana.
The Ghanaian government implemented significant projects related to its election promises, such as free education and the “One District One Factory” initiative, aiming to transform the nation into a major industrial hub. Three-quarters of the criteria for the West African Monetary Zone (WAMZ) had been met by the government. In 2018, Ghana’s Human Development Index was 0.072. The GDP per capita increased from $5,237 in 2016 to approximately $6,072.6 in 2019. [v]
The government had plans to minimize debt levels by 2021. In his 2016 election campaign, the current president criticized his predecessor for mismanaging the economy, accumulating unnecessary external debts, especially from the International Monetary Fund (IMF), which has a negative reputation among the public in developing countries.
Government Decisions and Economic Impact During COVID-19
The Russo-Ukrainian war reshaped government priorities, particularly economic revival plans, changing political priorities among nations.
The bank also reduced the cost of mobile money transfers. No charges were applied for mobile financial transactions below 100 cedis (18 USD) for three months. .[vi](KPMG).
They also requested a swift disbursement from the IMF and the World Bank to the credit sector to help the country counter the negative economic impacts resulting from the spread of COVID-19.
In addition, the government launched two initiatives to support the economy of Ghana and address the concerns of business entrepreneurs: the CAP-BUSS INITIATIVE, focusing on job preservation, livelihood sustenance, and support for small businesses, benefiting approximately 230,000 business owners from a fund estimated at 174 million dollars. The second initiative, “Ghana Cares” or Obaatan pa, aimed to revitalize the economy of Ghana with a budget of approximately 1.7 billion dollars, scheduled to last from 2020 to 2023.
Moreover, the government provided free water for nine months and absorbed 50% of electricity bills for both household and commercial use for the same period. Free electricity was provided for the lowest-income segment of the population[vii][viii][ix][x]
Impact of the Ukrainian Crisis on the Economic Situation
Following the initial global recovery from the repercussions of the COVID-19 pandemic and the optimism regarding the revival of the economy of Ghana, the international scene was shaken by the Ukrainian crisis. At first glance, this crisis appears to be predominantly political and security-oriented.
Over nine months (September 2021 to May 2022), the price of maize surged by 65%, while that of wheat rose by 88%.
However, its ramifications on the global and African economy were profound, particularly impacting hydrocarbon prices, foodstuffs, and fertilizers. Ghana, primarily an agrarian country where over a third (30%) of its population works in agriculture, was no exception to these impacts.
The Ukrainian crisis also resulted in significant losses for the economy of Ghana. Ghana-Ukraine trade stood at $119 million, while imports from Russia were valued at $123 million. The crisis caused a spike in the prices of chemical fertilizers in the economy of Ghana, further straining agricultural productivity.
Given that fertilizers are crucial for Ghanaian farmers, a study by the International Food Policy Research Institute indicates that 71% of farmers in Ghana use fertilizers for maize cultivation, 72% for cocoa, 71% for rubber, 49% for cassava, 65% for rice, and 61% for cotton. Since Ghana relies 100% on imported fertilizers, the price increase significantly impacted production levels, leading to market shortages and, consequently, price hikes. [xi]
Furthermore, the crisis influenced the prices of basic commodities, significantly impacting the economy of Ghana. Over nine months (from September 2021 to May 2022), the price of maize surged by 65%, while that of wheat rose by 88%. The energy sector also felt the pinch with increasing fuel prices, gradually affecting transportation costs and all related sectors. Although Ghana produces oil, its reliance on importing 80% of its refined oil needs added pressure on the economy of Ghana, complicating the government’s efforts to stabilize oil prices amidst global market volatility. [xii][xiii]
Conclusion
International political events have profoundly influenced the economy of Ghana. Inflation rates in Ghana surged dramatically, from 9% in February 2020 to 52% in February 2023. The currency experienced a significant devaluation of 40%, while the GDP growth rate declined from 5.4% in 2021 to 3.2% in 2022. Additionally, Ghana declared its inability to service external debts, compelling the nation to seek assistance from the International Monetary Fund to stabilize its economic trajectory.
Political decisions, like providing free electricity and water (announced six months before the presidential elections), were made to influence the decisions of Ghanaian voters, especially those from lower-income groups. Ghana’s elections are known for their competitiveness, with winning margins often less than 55% (50.8% in 2008, 50.7% in 2012, 53.72% in 2016, and 51.30% in 2020).
The halt in shipping and exports during the COVID-19 pandemic significantly impacted Ghana’s economy, mainly reliant on the export of primary commodities (gold, cocoa, hydrocarbons). This crisis didn’t only affect Ghana’s international trade but also its regional trade as the government continued to close borders for over a year, hampering intra-regional trade.
The Russo-Ukrainian war significantly reshaped the economic priorities of nations, including the economy of Ghana. Government revival plans were altered as Ghana, like other countries reliant on primary commodity imports, faced severe shortages of wheat and other essential foodstuffs due to the war’s disruptions in global supply chains.
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References
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[xi] XINCHEN DIAO and others, 2022 , Ghana: Impacts of the Ukraine and global crises on poverty and food security, IFPRi website , retrieved from : https://doi.org/10.2499/p15738coll2.135961
[xii] XINCHEN DIAO and others, Edem, I don’t know what to
[xiii] Boateng ,richieson , The War in Ukraine: The Effects on the Economy of Ghana, modern Ghana website , retrieved from : https://www.modernghana.com/news/1146741/the-war-in-ukraine-the-effects-on-the-economy.html .
